"Buy Local"—you see the decal in the store window, the sign at the farmer's market, the bright, cheerful logos for Local First Arizona, Think Boise First, Our Milwaukee, and homegrown versions across the states. The apparent message is "let's-support-local-business", a kind of community boosterism. But buying close to home may be more than a feel-good, it's-worth-paying-more-for-local matter. A number of researchers and organizations are taking a closer look at how money flows, and what they're finding shows the profound economic impact of keeping money in town—and how the fate of many communities around the nation and the world increasingly depend on it.

At the most basic level, when you buy local more money stays in the community. The New Economics Foundation, an independent economic think tank based in London, compared what happens when people buy produce at a supermarket vs. a local farmer's market or community supported agriculture (CSA) program and found that twice the money stayed in the community when folks bought locally. "That means those purchases are twice as efficient in terms of keeping the local economy alive," says author and NEF researcher David Boyle.

Indeed, says Boyle, many local economies are languishing not because too little cash comes in, but as a result of what happens to that money. "Money is like blood. It needs to keep moving around to keep the economy going," he says, noting that when money is spent elsewhere—at big supermarkets, non-locally owned utilities and other services such as on-line retailers—"it flows out, like a wound." By shopping at the corner store instead of the big box, consumers keep their communities from becoming what the NEF calls "ghost towns" (areas devoid of neighborhood shops and services) or "clone towns", where Main Street now looks like every other Main Street with the same fast-food and retail chains.

According to Susan Witt, Executive Director of the E.F. Schumacher Society, "buy local" campaigns serve another function: alerting a community about gaps in the local market. For instance, if consumers keep turning to on-line or big-box stores for a particular product—say, socks—this signals an opportunity for someone local to make and sell socks. This is the way product innovations get made, says Witt. "The local producer adds creative elements that make either the product or materials used more appropriate to the place." For example, an area where sheep are raised might make lambs wool socks and other goods.

The point is not that communities should suddenly seek to be self-sufficient in all ways, but rather, says Boyle, "to shift the balance. Can you produce more locally? Of course you can if the raw materials are there, and the raw materials are often human beings."

And what about that higher cost of local goods? After all, big-box stores got to be big because their prices are low. Susan Witt says that the difference falls away once you consider the increase in local employment as well as the relationships that grow when people buy from people they know. (Plus, one could argue, lower transportation, and therefore environmental, costs, and you know what you're getting—which as we've recently seen with suspected contamination in toys and other products from China, can be a concern.)

There's also the matter of local/regional resilience. Says Witt: "While now we're largely a service-providing nation, we're still just a generation away from being a nation of producers. The question is: what economic framework will help us reclaim those skills and that potential." Say, for example, the exchange rates change or the price of oil rises (and it has started to creep up, if not at last summer's pace) so that foreign-made goods are no longer cheap to import. We could find ourselves doubly stuck because domestic manufacturing is no longer set up to make all these products. While no community functions in isolation, supporting local trade helps "recreate the diversity of small businesses that are flexible and can adjust" to changing needs and market conditions, says Witt.

Another argument for buying local is that it enhances the "velocity" of money, or circulation speed, in the area. The idea is that if currency circulates more quickly, the money passes through more hands—and more people have had the benefit of the money and what it has purchased for them. "If you're buying local and not at a chain or branch store, chances are that store is not making a huge profit," says David Morris, Vice President of the Institute for Local Self-Reliance, a nonprofit economic research and development organization based in Minneapolis and Washington, D.C. "That means more goes into input costs—supplies and upkeep, printing, advertising, paying employees—which puts that money right back in the community."

One way to really make sure money stays in the community is through creating a local currency. Christian Gelleri, a former Waldorf high school teacher in the Lake Chiem area in Germany, has launched a regional currency, the Chiemgauer, equivalent in value to the Euro. According to Gelleri, the Chiemgauer, accepted at more than 600 businesses in the region and with about $3,000,000 Euros worth in circulation, has three times the velocity of the Euro, circling through the economy an average of 18 times a year as opposed to 6. One reason for the fast turnaround is that the Chiemgauer is designed to encourage spending: there is a 2% demurrage fee for holding onto the bills beyond three months.

As an economic principle, velocity has been considered a constant. According to Gelleri, it was stable in the 1950s, '60s, and '70s but starting in the '80s velocity has decreased as more money has been diverted to the financial sector. This scenario may benefit financial centers, but money tends to drain away from other places. Gelleri says that both the Euro and the U.S. dollar have slowed way down. "In the last several months velocity has declined sharply because there's less GDP and more money," he says. "The money doesn't flow. More money is being printed, but it's not going into circulation."

As the nation limps through the recession, many towns and cities are hurting. "Buy-local" campaigns can help local economies withstand the downturn. Says Boyle: "For communities, this is a hopeful message in a recession because it's not about how much money you've got, but how much you can keep circulating without letting it leak out."

I like my local Safeway grocery store a lot. (I can even get sardines at midnight.) But while I was enjoying my regular routine, appreciating the quality and variety of groceries, an annoying announcement came on over the sound system touting their “locally grown” produce section. We should buy stuff from that section, they said, because doing so “helps our local community.”

I understand that Safeway and its competitors do such promotions because they think it will be good for business, as it may well be. There’s nothing wrong with that. But let’s see if we can make sense of their claim about helping the local community.

To begin with, only individuals can be helped or hurt. Unless the store’s claim is that every individual within a certain radius of its location is helped, it makes no sense to talk of “the community.” We need to sort out which individuals are helped or hurt when we “buy local.”

Why ask for help?

The first question to ask is why local growers need help.share this quote:

The reason must be that they can’t compete with bigger firms on price, quality, or both. That’s likely, because they lack economies of scale. The burden of fixed costs weighs heavier on small farms, per unit of production.

The next question is why they deserve help. If I patronize my neighbor’s children’s lemonade stand, a desire to help is foremost in my mind, not the lemonade per se. The same is likely true of people who want to buy locally grown produce. They want to help local growers because they see them as neighbors, although in my area the nearest farms are 30 miles away.

People are entitled to hold romantic notions about local growers. But they should ask themselves the next question: What are the costs? They should heed Frédéric Bastiat’s injunction to pay attention to what is unseen, not just what is seen. Business shifted toward local growers is taken away from larger, more efficient firms. The result is an overall decline in economic efficiency as resources are shifted from more efficient suppliers to less efficient local growers.

Many people view these large firms as faceless and vaguely sinister corporations. But the managers and stockholders and employees of these firms are people, too. They have faces and they are somebody’s neighbors. And this is just as true for growers in the developing world as it is for domestic suppliers. The same goes for the vast network of vendors who deal with the large produce firms.

Hampered food markets

A further question to ask is whether there are government interventions that play a role here. Large firms often wield a lot of lobbying power, which they use to gain special favors. The solution to this problem is not to buy locally but to remove the regulatory strictures that are the root of corporate rent seeking.

Zoning restrictions sometimes play a role. I live in a heavily built-up area, but vast areas of the coastal side of my county are devoted to agriculture because zoning laws forbid landowners from using their land for anything else. Its most productive use would likely be housing. The best way to help the local growers in this case would be to remove the zoning restrictions so they can get out of agriculture.

Hard sell

Government interventions aside, my story is a metaphor for the parochial thinking that makes international free trade, a notion supported by the vast majority of economists, such a hard sell. We tend to be suspicious of foreigners and biased in favor of our neighbors. We see losses when foreign competitors underbid local suppliers but fail to see the more-than-offsetting benefits of better, cheaper imports because those benefits are widely dispersed. And curtailing of free trade intensifies jingoism and even military conflict.

Supper at our house tonight will feature fresh packaged lettuce from a subsidiary of Chiquita Brands, Inc., a large multinational firm. The lettuce might have come from 75 miles away but it could also be from one of their farms in Mexico or Ohio or Arizona. Next time I’m in Safeway, I’ll look at what their local competitors offer, but unless I see better value for my money, I’ll stick with Chiquita.

Warren Gibson teaches engineering at Santa Clara University and economics at San Jose State University. Comment:Tim Kern • 24 days ago

"The solution to this problem is not to buy locally but to remove the regulatory strictures that are the root of corporate rent seeking."

Which do you think is a more-effective use of your personal time? You can buy locally, right now, or send money to some lobbyist who will hope to buy a few minutes of some senator's time. And the senator will do whatever his Party says to do, anyway.

The question is, can any difference be made by your choice? If not (or if the difference is infinitesimal compared to its cost), then you should assess the entertainment value of your actions, and place your bet accordingly.

You should change the title of this story to "Reasons to not believe the 'buy local' BS pushed by corporate grocery stores" because that is mostly what this article pertains to. Like every other aspect of modern life, huge chain grocery corporations that stated as an overall good thing have shifted to something that does more harm than good now.

In your circular, roundabout way of getting to the point here, you potentially harm ACTUAL local movements by lumping all "Buy Local" ideas into a corrupt corporate market strategy. Buying your food from local producers isn't something that is available in every area of the country, but that will hopefully change with time and perserverence.Buying locally produced food is something that can have a large effect on every local economy in many ways, not the least of which is keeping local money in local economies, not sitting in off-shore bank accounts, not to mention that the ability to weed out food coated in industrial poison and loaded with toxins that have become the hallmark of industrial farming becomes exponetially easier to accomplish.

I don't disagree with what you've said as it pertains to Corporations and corrupt government. That being said, I do believe we are in the midst of a rather large paradigm shift in regards to food and it's production and sustainability. People are becoming fed up with industrial poisons and their effects, as well as being used as lab rats for Big Agra and their shallow attempts to control the food supply.The answer to that problem is the resergence of the family farm and the production and sale of food in local markets. TRUE freemarket economy should then be able to reassert itself in the way it always has because it is much easier to check up on a local farmer than it is a faceless corporate entity. Not to mention that that in itself is easier to accomplish on a local, even regional basis than a nationwide or worldwide basis.

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